What do you really want from your bank?

Bank-bashing is a favourite hobby of the unenlightened. But what do those who know and understand the role that financial institutions play think of the service they get? Treasury Today assesses the lay of the land.

Bank customers may get the feeling sometimes that financial institutions are run on the kind of principles espoused by Mr Bumble in Charles Dickens’ Oliver Twist. In order to discourage paupers from asking for relief he suggests giving them “exactly what they don’t want; and then they get tired of coming.”

Indeed, companies faced with a range of issues that variously includes managing currency controls and the volatility of FX and commodities markets, the upheaval of centralising processes, the threat of geopolitical instability and a raft of new regulatory and central bank reporting demand, and even the threat of cyber-fraud, will necessarily seek help from their banks. But whilst the banks fully understand that they have a vital role to play in oiling the machinery of commerce, do they really deliver the goods and services required or are they dodging the issues faced by their customers?

Back in December 2013, a meeting of Chris Skinner’s networking group, the Financial Services Club, led by Colin Tyler, CEO of the UK Association of Corporate Treasurers (ACT), pondered whether banks were indeed meeting their corporate customers’ needs. According to Skinner’s summary of the event, the conclusion was ‘not really’.

Most corporates, Tyler suggested, want banks to show them how to get the most from their assets, enhance and unlock shareholder value, improve their working capital and ease the supply chain. “What they tend to get is product sales-focused bank relationship managers, who focus upon the bank’s needs rather than the customers.”

The issue of whether banks are meeting corporate needs is certainly not a Euro-centric discussion. EuroFinance’s Cash and Treasury Management Asia 2014 event, held in Singapore, witnessed one lively discussion entitled ‘The customer will define the bank of the future’. Scott Engle, Group Treasurer for Hong Kong-based insurance company, AIA Group Limited, pulled no punches when he told delegates that “banks significantly overvalue their value to a corporation,” adding for good measure that “the only reason I need banks is because I pay money and I collect money.”

“Not every corporate has the necessary level of experience; they look to banks to bring that knowledge to the table.”

Kerry Saunders, IT Lead for Treasury, Constellium

A year is a long time in the financial services sector, so has anything changed? Seemingly not. In March of this year, delegates at Fundtech’s ‘Insight EMEA’ conference held in London listened as Chris Donohoe, Assistant Treasurer, EMEIA, for the global diversified industrial company, Ingersoll Rand, told of his experience to date. “Too often we’ve seen banks come to us with off-the-shelf products that don’t really meet the needs of a complex business,” he said. “What I’d like to see is banks taking the time to really get to know us.” In taking the time to understand a client’s strategic goals, technical and technological capabilities, Donohoe believes banks have the opportunity “to align with customer expectations.”

Know your customer

Over the years, banks clearly should have accumulated a great depth of experience and knowledge about what works and what doesn’t; in theory, they should know where the “sweet spots” are, commented Donohoe. As such, he’d like to see more of an educational approach from them, enabling clients to get the most effective use of a solution. Under the guidance of local regulators and tax authorities, financial institutions should also try to support the changing structure of a product throughout its lifespan. They should not just “put it in and walk away.” Indeed, he is adamant that banks should become more proactive in their delivery of strategic and relevant advice.

Adam Boukadida, Deputy Treasurer of Abu Dhabi-based Etihad Airways, also speaking at the Fundtech event, agreed. “They have to understand our business and become a strategic partner rather than just looking at us as a sales opportunity,” he stated. With Etihad operating in more than 75 countries it has a complex business approach; banks must be able to understand the fundamental processes of their clients’ businesses as well as its technical treasury function.

Know your product

Boukadida’s fellow panellist, Kerry Saunders, IT Lead for Treasury at Constellium, a global producer of aluminium semi-products, naturally looked at bank service from a technology perspective. She noted that whereas some banks have a very structured approach to what should be a ‘commoditised’ IT project such as a SWIFT implementation, with others “it feels like we are the first customer to ask for it.” But she said banks should not only be alerting treasurers to the benefits of structures such as SWIFT, but also then helping them through the implementation. “Not every corporate has the necessary level of experience; they look to banks to bring that knowledge to the table.”

Banks are in a position to understand certain aspects of a client’s business, such as its overall payments activities, better than the client itself, simply because the bank has access to so much more data. Armed with that data, rather than waiting to be asked, banks should be proactively helping corporates (especially smaller and mid-sized firms) to better manage their process costs and efficiencies.

Are banks attracting the right people?

To be able to deliver the right services, banks rely on bringing in the right people of which education is an important factor. Most bankers have undertaken a business or finance-related degree such as accounting, business or economics, prior to entering the financial sector according to Emolument.com a ‘salary benchmarking site’ which recently surveyed more than 700 London-based bankers. Whilst this route represents the highest proportion (34%) of the banking population, business graduates are not the best paid. At director-level, banks value mathematics and statistics graduates over their business, finance and accounting colleagues, the former earning on average around £398,000 pa versus the latter’s £265,000 pa This may reflect the aptitude for more scientific minds to rise to the technical challenge of structuring deals or trading in an environment using increasingly complex financial products. It may equally indicate the current value banks are putting on individuals with the capacity to get to grips with this complexity.

Commenting on the differences, Thomas Drewry, CEO at Emolument.com, said that in the last few years, with mounting pressure for efficiency and the capacity of young bankers to hit the ground running, banks have tended to favour candidates armed with technical degrees. After all, he noted, spending time teaching an analyst about yield curves, balance sheets and volatility is a costly exercise so from an HR point of view at least it makes sense to opt for the individual with three years of relevant study under his or her belt. However, Drewry does point out that trading floors and corporate finance departments “are likely to keep becoming less diverse when it comes to education,” the impact of which is yet to be revealed.

Right to reply

The London Fundtech panel did give the banking community the right of reply, lining up a brace of seasoned experts. “I think banks do need to have a better understanding of how their clients operate,” admits Des Twort, Treasury Specialist, Bank of America Merrill Lynch (BofAML). It should not be a case of the bank turning up with its line of products and services and hoping that the client will buy something, but about understanding where the client sits on the spectrum of sophistication, where its challenges and needs are, and whether it needs a strategic or tactical solution to meet those needs.

Jonathan Parker, VP Cash Management Sales, Global Transaction Services, Santander, acknowledged that banks must have an openness to the client’s objectives and what the pressures and demands are on treasury within the organisation. “It requires building up a fact base so that we can position the right services to the business at the right time and present a view of what is coming down the line by way of services, functionality and trends in the market.” But Parker believes there is a responsibility on the treasury’s part to be “open and communicative” with its bank so that the bank has the ability to react when it needs to and with the appropriate speed.

In this respect, Twort observed that “eight times out of ten you never get to speak to an IT person” when going through an RFP for an integrated banking solution. When it gets to the implementation, he observes that it will often fall down because the IT people “straight away see that what has been bought will not work in the existing infrastructure.” The key for the corporate then, said Etihad’s Boukadida, is to align all project stakeholders and contributors, including the bank and the system and service providers. In this way, the process becomes transparent “and everyone understands the end goal and is working towards it.”

A shared experience?

Compliance is a concern for banks, with KYC and AML rules for example requiring constant attention. It is a bank issue in that they are the ones that are fined and take the reputational hit if something goes wrong. In this respect, an interesting observation raised by ACT’s Tyler at the aforementioned Financial Services Club meeting was the notion that banks are increasingly asking their corporate customers to help them with the regulators. “The regulators should be focused upon the corporate needs but rather than this being the case the corporations are being caught in the bathwater being thrown out by the regulator in their sweeping changes to trading operations.” This effect had been previously noted at a Nordic Financial Services Club meeting. The very idea that banks are asking their corporate customers to help them face up to the regulators is something that Edward Harkins, an independent consultant specialising in the public and not-for-profit sectors, felt compelled to comment on Skinner’s blog that it “somehow gives me a queasy feeling.”

Not so for Ingersoll Rand’s Donohoe who feels that compliance should be tackled as a partnership and believes the responsibility ultimately lies with the corporate to ensure the correct procedures are followed. His company manufactures compressors for the oil and gas industry that will at times be sold in countries with a very dynamic geopolitical climate. “It’s hard to say to the bank that it owns the sanctions when we are responsible for who we are selling to and who will pay. Of course, there is a limit to what Ingersoll Rand can know about the eventual user of its products but it has a highly active compliance department to prevent transgressions as far as possible.”

It is true that trade compliance and financial compliance can be two very different matters; a firm can sell its product in a certain country but might not be able to receive payment. It may be that, for example, a bank from the US may not be permitted to handle a contract for a deal in Cuba whereas a European bank will have no such issue. Because compliance tends to be very fluid, with policy changing quite quickly, Donohoe said there has to be an ongoing relationship between bank and corporate and that the corporate has to take ownership of who it sells to and who it is paid by. Indeed, few companies want money arriving in their bank accounts that will cause a major compliance issue. But banks must keep clients up to date on sanctions matters and where bank policy potentially affects the handling of payments.

Earn your keep

What corporates really want from their banks, it seems, is a more up-front approach. Corporates will engage more than one banking partner but when a bank wins the business it can’t just sit back; it has to earn its fees. To win and retain a share of wallet requires proactivity where banks come forward with business solutions and propose opportunities for greater efficiency. The appearance of more ex-treasury personnel in the bank consultancy line-up is, he feels, a sure sign of progress. “We select the topics we want to discuss, but if that is offered, we will definitely take that up,” stated Boukadida.

For Saunders, knowledge is the key to banks offering value-added services. Having worked with two mid-sized corporates she noted that it is relatively easy to switch banks, SWIFT allowing an almost bank-agnostic state to prevail. “Banks need to make us want to stay with them, bringing their knowledge and tools so they stand out from the crowd, because for us it looks like a very level playing field.”

The ideal situation for Donohoe is to have someone at the bank that feels as if they have actually worked for the team for years before moving to the relationship bank. “Sometime treasurers can be afraid to mention they are working on a certain project because they know they will be inundated with bank sales people. It’s about getting the right person that knows and understands your business and who is proactive and will talk to you about relevant issues.”

In offering his view on corporate requirements from their bank, the ACT’s Tyler presented the following list:

Banks may have progressed in their quest to meet the needs of their corporate clients but in reality that quest is never-ending as corporate needs keep changing in their own ongoing struggle to accommodate the push and pull of the commercial world.

Treasurers are looking for a banking community that is ready, willing and able to co-operate not just when diagnosing problems and offering solutions but also by improving connectivity with and accessibility to information held by those banks.

In the final analysis, Damian Glendinning, the Singapore-based treasurer at multinational computer technology company, Lenovo, amuses with his trenchant remark made in a recent conversation with Treasury Today. As a treasurer of significant experience he is still drawn to comment that “nobody has ever accused the banks of understanding what corporates want.”